Gaming-Resources.com has word that the Steam edition of Call of Duty 4:
Modern Warfare carries a $49.95 price tag in the US and a $69.95 MSRP for
European customers (thanks
Voodoo Extreme). They contacted Valve to ask about this and learned that
these prices are set by the publisher, meaning Activision is responsible for
this.

I hope everyone's sake no-one does actually pay these prices since if they can get away with charging more than store RRP for a product that's released later in one market, you can be damn sure they'll try doing it elsewhere...

If that's the case why are Activision only charging $49.95 in some parts of Europe like Cyprus and Estonia

It's the same reason why Valve is charging less for the Orange Box in Thailand and Russia. These game companies are charging what they think the local populations will pay, and game prices are so inflated in relation to the cost of production that they can do that and still make money.

So if activision were compensating for the weak dollar then the european price would have to be less than the US price.

No, you have it backwards with regards to business. Activision used to get around 50 euros for its $50 games. Now with the dollar dropping to all-time lows, the euro is worth 40% more than the dollar. So, Activision is jacking up its game prices to $70 for European customers so that it will still get around 50 euros from them for its games.

I see now why Valve was deactivating games being played from 'incorrect' regions recently.

Exactly and with the dollar really being in the toilet, you are probably going to start seeing a lot more of that from Valve and others on Steam to prevent Europeans from buying cheap U.S. copies of games.

The good news for Europeans is that they can still import traditional U.S. games sold on physical media and save money while not being locked out of their games when they play them in Europe.

How many times have I said this Riley? Your response was always, 'Valve has some say...blah blah'.

No, idiot, as usual you missed my point. My point was and is that Valve affects how low the price of a third-party game on Steam can be because Valve gets a significant cut of that price, e.g. in some cases it's 50%. If Valve's cut were less, the third-party developer or publisher could charge less. That doesn't mean they will, but it certainly gives them more room to do so while still making as much margin as they get from retail. That's one reason why the Sam & Max games are less expensive to buy direct from Telltale instead of through Steam.

Here Activision is simply gouging European Steam customers to justify the high prices Activision is charging EU retailers for boxed copies of the game.

Activision are simply trying to compensate for the weak dollar and brilliant VFM Steam offers european users. Shame it fucks us EU customers over in the process...

Ahh well, now the only reason to purchase it over Steam is for the multiplayer match making - does it even use Steam? I'll just wait till it drops below £20 at retail. After all, an 11 hour single player campaign and half-baked console-focused multiplayer for over £30? Nuh-uh